Rather than deal with the euro’s problems—the underlying cause of the union’s economic and financial strains—leadership in the EU and Germany seem bent on distracting discussion by playing a moral card. They have regularly lectured Greeks and Italians, Portuguese and Spaniards about their spendthrift ways, blaming them for putting these countries in the position where they must periodically beg for help from the union, largely Germany. Then in return for help, these leaders have imposed draconian austerity measures to correct the supposed spendthrift habits. Though it is true that these governments have borrowed excessively and to little productive purpose, neither the blame game nor the austerity gets to the root of the problem or even a branch of it.
Of late, the French have tried to find a solution in a fiscal union to match the monetary one. Paris wants to transfer income from the richer members of the union, most notably Germany, to the weaker and poorer periphery. It might seem just since the Germans have been the great beneficiaries of the euro’s biases and the periphery has suffered most from them, but it hardly offers a corrective option. Should the EU proceed along this path, it would require ever-larger transfers. Even if Berlin acquiesced to such a scheme initially, a growing burden with no relief in sight would surely sour Berlin on the whole experiment.
Rather than such a fiscal scheme, Europe would do better to recognize its initial error. It could restructure the euro to reflect the relative underlying economic strengths of its members, as it should have done twenty-plus years ago at the common currency’s inception. There is nothing in such a restructuring that denies EU leadership the dream that it never tires of repeating to build “an ever closer union.” True, it would hardly be a perfect remedy, because fundamental economic strengths will develop differently and the new common currency, even after adjustment, would fail to accommodate such differences unless, of course, it was adjusted periodically. But at least a one-time adjustment would remove the present huge bias and blunt the divergent development and debt trends that the original mistake has fostered. Short of this answer, Christine Lagard might do more for her union by committing to the destruction of the euro not doing “whatever it takes” to preserve it.
Milton Ezrati is a contributing editor at the National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, the New-York-based communications firm. His latest book is Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live.